Unit 5: The
Resource Market
1
Use the concept of derived demand to explain this
cartoon
What about SUPPLY?
2
Shifter Review
3 Resource Demand Shifters (Based on MRP)
1. Demand (price) of the product
2. Productivity of the resource
3. Price of related resources
3 Resource Supply Shifters
1. Number of qualified workers
• Education, training, & abilities required
2. Government regulation/licensing
Ex: What if waiters had to obtain a license to serve food?
3. Personal values and traditions regarding leisure
time and societal rolls.
Ex: Why did the US Labor supply increase during WWII?
3
Resource Markets
Perfect
Competition
Monopsony
Imperfect Competition: Monopsony
Characteristics:
• One firm is hiring workers
• The firm is large enough to manipulate the market
• Workers are relatively immobile
• Firm is wage maker
• To hire additional workers the firm must increase
wages
Examples:
Midwest small town with a large Car Plant
NCAA
4
Assume that this firm CAN’T wage discriminate and
must pay each worker the same wage.
Acme Coal Mining Co.
Wage rate
(per hour)
Number of
Workers
$4.00
4.50
5.00
5.50
6.00
7.00
8.00
9.00
10.00
0
1
2
3
4
5
6
7
8
Marginal
Resource Cost
Assume that this firm CAN’T wage discriminate and
must pay each worker the same wage.
Acme Coal Mining Co.
Wage rate
(per hour)
Number of
Workers
Marginal
Resource Cost
$4.00
4.50
5.00
5.50
6.00
7.00
8.00
9.00
10.00
0
1
2
3
4
5
6
7
8
$4.50
5.50
6.50
7.50
11
13
15
17
MRC doesn’t
equal wage
Monopsony
If the firm can’t wage discriminate, where is MRC?
MRC
Wage
SL
WE
DL=MRP
QE
Labor Unions
Goal is to increasing wages and
benefits
How do Unions Increase Wages?
1. Convince Consumers to buy only Union
Products
Ex: Advertising the quality of union/domestic
products
2. Lobbying government officials to increase
demand
Ex: Teacher’s Union petitions governor to
increase spending.
3. Increase the price of substitute resources
Ex: Unions support increases in minimum wage
so employers are less likely to seek non-union
workers